Consumer agency simplifies mortgage disclosure forms

The new mortgage forms are designed to make it easier for borrowers to locate crucial information such as interest rate, monthly payments and costs to close the loan.

Photo: Cliff Owen / Associated Press

WASHINGTON — People purchasing homes and refinancing mortgages will have the details of their loans spelled out in simple terms as the government moves to streamline cumbersome disclosure forms.

The Consumer Financial Protection Bureau has issued a final rule requiring lenders to use its new mortgage forms, which are designed to make it easier for borrowers to locate crucial information such as interest rate, monthly payments and costs to close the loan.

Housing advocates have long complained that the pile of paperwork homebuyers receive from lenders is confusing and rife with duplication. Some homebuyers have said that in the run-up to the housing crisis, they were steered into mortgages with terms they didn't fully grasp, such as loans that offered low interest rates that would triple after a few years.

“Our new Know Before You Owe mortgage forms improve consumer understanding, aid comparison shopping and help prevent closing-table surprises for consumers,” said Richard Cordray, director of the CFPB.

The disclosure rule, which takes effect Aug. 1, 2015, aims to curb bait-and-switch tactics, when the terms of the mortgage change at closing, the bureau said.

Loan officers must provide consumers a summary of estimated loan costs and terms within 72 hours of receiving their mortgage applications. The summary will feature a more detailed breakdown of terms, such as any prepayment penalties and balloon payments, than the good-faith estimate lenders now provide, according to the bureau.

Consumers also will get more time to consider their options, as lenders will have to provide final disclosures three days before closing, instead of the day borrowers sign the contract. The idea is to give people the opportunity to ask questions and negotiate changes.

The bureau will restrict lenders from hitting consumers with new or higher fees on a final loan unless there is a legitimate reason.